August 21, 2003
Price of Treasuries Tumbles on Fear of Return of Inflation
By BLOOMBERG NEWS
he 10-year Treasury note had its biggest decline in a week in New York trading yesterday on speculation that job and manufacturing reports today would provide evidence of faster economic growth, and thus help ignite inflation.
Investor concern that inflation, which erodes the value of a bond's fixed payments, will accelerate has contributed to the worst two-month period for government debt in at least 20 years. H. Alfred Broaddus Jr., president of the Federal Reserve Bank of Richmond, Va., told CNBC that the economy had a good chance of growing at a 4 percent rate through 2004.
Sharon Stark, chief fixed-income strategist at the brokerage arm of Legg Mason in Baltimore, which oversees $192 billion in assets, said, "I'm not real confident rates are going to head back down."
The 10-year Treasury note fell 1732 yesterday, to a price of 981832. The note's yield, which moves in the opposite direction from the price, rose to 4.43 percent from 4.36 percent on Tuesday.
The price of the 30-year Treasury bond dropped 1832 yesterday, to 1011232. The bond's yield jumped to 5.28 percent from 5.24 percent on Tuesday.
Treasuries fell overnight before rising in early trading in New York when the Mortgage Bankers Association of America said applications for mortgages fell for a second consecutive week to the lowest in more than a year amid rising mortgage rates. Government debt resumed its decline after the comments by Mr. Broaddus.
"Things look a little stronger and give me at least a little bit more confidence in the forecast that growth is going to pick up," said Mr. Broaddus, a voting member of the central bank's Federal Open Market Committee that sets monetary policy.
Mr. Broaddus also played down the Fed's comments in May about the threat of deflation, or a general decline in prices. Those comments helped push the yield on the 10-year note in June to the lowest level since 1958.
"We were simply trying to say that we recognize that, that we were prepared to deal with it," he said. "The markets interpreted that one way."
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